grim outlook for the container shipping industry

The long-lasting boom in the container shipping industry ended abruptly last year when first high freight rates caused by record-high oil prices lowered demand and prompted companies to relocate production capacities closer to big consumer markets and towards the end of 2008, demand for consumer goods from recession-torn countries plummeted resulting in costly overcapacities. On the one hand, container lines could breath a sigh of relief since they don’t have to pay a fortune to fill up the tanks of their cargo vessels – at least not at this moment – but they’re strugglingto fill the decks of their ships with containers generatingenough revenue to cover operatingcosts. The surplus of cargo capacities is especially significant on the Europe-Asia routes as well as on the routes linkingNorth America to Asia. As shipyards continue workingoff the numerous orders from previous years, cargo capacities will continue climbing until 2012 unless orders are postponed and older ships put out of service in large numbers.

A wave of acquisitions and mergers appears inevitable. The consolidation process will let smaller freight lines disappear. The focus of the more dominant shippers is expected to shift to the routes to South America and the still growing economies of China and India which are permanently consuming more raw materials.

In the medium and long term, the outlook is not so bleak as global trade volumes will continue to grow as soon as consumer confidence recovers and postponed investments are due to be made. Therefore, the shipping industry just needs to find a solution to bridge the current trough. The bigger companies are likely to expand their control of the market and take over slots and terminals from smaller competitors which is to increase future profits. Port operators might also benefit in the l0ng term from acquiring smaller rivals.

Despite the current uncertainties and helplessness of the container shipping industry, the French container line CMA CGMappears to be willing to launch yet another new Europe-Asia route. The new service could be launched in summer while competitors are suspending services. According to the company, this step is aimed at securing”a leadership position in the Asian shipping market.”

The global economic downturn in addition to the crisis in the shipping industry hits the South-East Asian city-state of Singapore especially hard. The port of Singapore is the world’s busiest container port serving as a hub for South-East Asia. Next to the port, a large share of Singapore’s earnings comes from the financial industry which is obviously in the worst shape in decades. The country’s exports have also fallen and cash-strapped tourists from Western countries also tend to stay at home. Consequently, it’s not surprising that Singapore’s economy was contracting 12.5% in the fourth quarter. Nevertheless, Singapore’s government has control of an abundance of cash and currency reserves. Measures have already been taken to stimulate the economy, create new jobs and soften the effect on the people. In April, I’ll travel to Singapore to take a closer look at the economic situation there and give you insights on how this country, that has been extremely successful for decades works. I’m especially interested in how Singapore prepares for the future. In April, you can get first-hand information right here.

You can also take a look at my article from August when Asia-Europe shipping started to decline: Shrinking Asia -> Europe cargo volumes indicating an economic downturn in Europe



Filed under Economy, Global Issues

4 responses to “grim outlook for the container shipping industry

  1. Pingback: Singapore determined to master the storm « What Matters

  2. Pingback: Singapore determined to master the storm | WHAT MATTERS WEBLOG

  3. “A wave of acquisitions and mergers appears inevitable. The consolidation process will let smaller freight lines disappear.”

    We all must do what we must do to survive. 🙂

  4. OHH Some very interesting and insightful thoughts. Adding this to my bookmarks. ^_^

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